Rebates from the health insurer, health reform law

I read in the paper that health insurers will be giving back more than a billion dollars to their customers this year. Don’t get me wrong – I’m glad to get even a few bucks back, but why are they doing that? I am also wondering how much I might get back.

Counting, but no chickens yet

Dear Counting but no chickens yet,

You might be wise to stop counting, if you live in Maine. No rebates are expected for Maine health insurance buyers. But, for future years, let’s look at why the $541 million in rebates is coming back to people nationwide.

Parts of federal health reform – known as the Patient Protection and Affordable Care Act – have been put into action. One requires health insurers to spend a certain percentage of their customer’s dollars (called “premiums”) on medical services and quality improvements.

For large group plans, the insurer is required to spend at least 85 percent of premium dollars on health care and quality improvement. For small group plans and non-group plans (also called “individual” plans), the insurer must spend at least 80 percent. Insurers have to give a rebate to customers, if their percentage spent on medical care/quality projects is too low. The rebate, essentially, forces the insurer to follow the rule.

According to the Kaiser Family Foundation, rebates will go to an estimated 31% of consumers in the individual market. More than one-quarter (28%) of the small group market and 19% of the large group market is projected to receive rebates. The average rebate for an individual customer will be $127, ranging from a high in Alaska ($305) to a low in Vermont ($1).

Naturally, it would be better to not have a rebate and simply pay the insurer the right amount the first time. Insurers will undoubtedly strive to set prices as close to accurate as possible, so that they do not have the hassle of sending out rebates. So this may be a one-time event, as insurers become used to the new law.